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Administrative expenses in R&DAdministrative expenses in R&D

Administrative expenses in SR&ED

Calculation20Nov2019

When are administrative expenses eligible in SR&ED?

When do some expenses other than those associated with scientific research or experimental development projects could be eligible for the SR&ED tax credit?

The Canada Revenue Agency (CRA) issued the Policy on Overhead and Other SR&ED Expenditures. It explains the rules regarding the deductibility of administrative salaries or wages in the context of SR&ED activities.

Overall, administrative expenses :

  • Must be “directly related” to the exercise of SR&ED, and
  • They would not have been incurred if the SR&ED activities had not been carried out (additional cost).

The phrase “directly related” here is important; the work performed by a particular employee or division must be linked to one of the following three elements, and must be done without any intermediary or step that intervenes between the employee / division and,

  • SR&ED work; or
  • SR&ED staff; or
  • Equipment used by staff to perform SR&ED.

In many cases, to properly determine whether an expense is directly related, an analysis of the tasks performed is required to ensure that a direct, unmediated link is present with the SR&ED work. Here are two partial lists of examples of tasks considered directly or indirectly related to SR&ED – based on the “SR&ED Overhead and Other Expenditures Policy”:

Directly related to SR&ED work  (claimable)

  • Salary or salary of administrative or clerical personnel providing services to SR&ED staff.
  • SR&ED financing (is “directly related” if the funds are used to carry out SR&ED activities).
  • Assessment, recruitment and hiring of SR&ED personnel.
  • Implementation of the technical and control of scientific projects, definition of future SR&ED projects, supervision of the SR&ED group, selection / evaluation of SR&ED projects.
  • Evaluating the technical feasibility of a product and the potential SR&ED efforts and costs involved.
  • Technological planning of ongoing SR&ED projects (assignment of technological personnel, priority of work, development of technological strategies, quality of materials to be used).
  • The work of clerical support staff for tasks directly related to SR&ED payroll, procurement and accounting.

Indirectly related to SR&ED work (not claimable)

  • Costs related to the management of the business (not related to SR&ED)
  • Costs related to bids.
  • Purchases (other than direct purchases of SR&ED materials / equipment).
  • Taxation and legal services.
  • Sales, marketing and advertising.
  • Employee relations.
  • Development of benefit programs for SR&ED employees.
  • Corporate secretariat and report to shareholders.
  • Initiation and closure of licensing agreements.
  • Feasibility studies (non-technological) that lead to potential SR&ED collaborations and assess the commercial feasibility of a given technology.
  • Commercialization of existing intellectual property.
  • Review and approval of SR&ED budgets.
  • Applications for patents.

At the federal level, these expenses are included in the proxy. In Quebec, it is possible to claim a credit on these expenses if the traditional method is chosen.

Important note: the information contained in this blog is for information only. Before evaluating or submitting a claim, you must consult an accounting or tax specialist and the relevant policies available on the Canada Revenue Agency (CRA) website.

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President, R&D Action. ------ Notre équipe est formée de spécialistes fiscaux, scientifiques et techniques qui comprennent les nuances du programme et de votre R & D. Nous travaillons avec votre équipe pour identifier et définir les projets éligibles de RS & DE, pour préparer un dossier clair et précis et pour le défendre, le cas échéant. ------------------------------------------------------ Our team is made up of tax, scientific and technical specialists who understand the nuances of the program and your R & D.. We work with your team to identify and define eligible SR & ED projects, to prepare a clear and accurate record and to defend it, when necessary.